Not acceding to Indian jurisdiction in tax case: Vodafone to Delhi High Court

Vodafone Group today told the Delhi High Court that it is not submitting to the jurisdiction of the courts here regarding the arbitration process initiated by it against India in connection with a tax demand of Rs 11,000 crore.

The high court on August 22 had restrained the Vodafone Group’s arbitration proceedings under the India-UK BIPA which was the company’s second arbitration on the same issue. (Reuters)

Vodafone Group today told the Delhi High Court that it is not submitting to the jurisdiction of the courts here regarding the arbitration process initiated by it against India in connection with a tax demand of Rs 11,000 crore. The company has initiated arbitration proceedings under the India-United Kingdom Bilateral Investment Protection Agreement (BIPA) in connection with the tax demand raised against the company in relation to its $11 billion deal acquiring the stake of Hutchinson Telecom. The high court on August 22 had restrained the Vodafone Group’s arbitration proceedings under the India-UK BIPA which was the company’s second arbitration on the same issue.

Earlier the company had initiated a similar arbitration under the India-Netherlands BIPA on the same issue and that proceeding is still going on. Senior advocate Harish Salve, appearing for the telecom major, today informed Justice Manmohan that the company in its response to the high court’s August 22 notice has said it is not acceding to jurisdiction of Indian courts in the matter. Salve also told the court that the Indian government had committed to appoint an arbitrator before the President of the International Court of Justice (ICJ), where the first arbitration is pending, but the fact was not disclosed here.

The central government, which has opposed the arbitration proceedings under the two BIPAs by moving a plea here, claimed that the company’s response was not as per the Civil Procedure Code (CPC). The court, however, said it would take up the matter on October 26, the date already fixed for the hearing, and asked both sides to file their written submissions by October 17. The court also appointed an amicus curiae to assist it in the matter. The court on August 22 had halted the second arbitration under India-UK BIPA, saying that since the reliefs sought in both proceedings were virtually identical, “there is a risk of parallel proceedings and inconsistent decisions by two separate arbitral tribunals in the present case”.

In its interim order, the court had also said it was of the prima facie view that “India constitutes the natural forum for the litigation of the defendants’ (Vodafone and its subsidiaries) claim against the plaintiff (Centre)”. The court had noted that the government was of the view that the USD 11 billion acquisition of stake of Hutchinson Telecommunications International Limited (HTIL) in Hutchinson Essar Limited (HEL) by Vodafone was liable for tax deduction at source (TDS) under the Income Tax Act.

As Vodafone had not deducted the tax at source, the government had raised the demand of Rs 11,000 crore which was subsequently quashed by the Supreme Court on January 20, 2012, the high court had said. Thereafter, the government made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone, the high court order had noted. Aggrieved by imposition of tax, Vodafone International Holdings BV (VIHBV), a Vodafone Group subsidiary, had invoked arbitration clause under BIPA between India and Netherlands through a notice of dispute of April 17, 2012 and notice of arbitration of April 17, 2014, the 10 page order had said. While the proceedings under the India-Netherlands BIPA was pending, Vodafone had initiated arbitration under the India-UK BIPA on January 24 this year.

Challenging the second arbitration, the government had said the two claims were based on the same cause of action and seek identical reliefs but from two different tribunals constituted under two different investment treaties against the same host state. The government had on August 22 argued before the high court that the arbitration proceedings initiated under the India-UK BIPA was an abuse of the process of law. It had further contended that disputes encompassing tax demands raised by a host state are beyond the scope of arbitration provided under the bilateral investment treaty as taxation is a sovereign function and it can only be agitated before a constitutional court of the host state. It had also contended that laws passed by Parliament cannot be adjudicated by an arbitral tribunal and do not fall within the ambit of BIPA or any other international treaty.